Truck freight rates up by 4-5 per cent

In the month of Septem­ber, freight rates on trunk routes saw an in­crease of four to five per cent on the back of strong cargo flow from agri­cul­ture and small and medium in­dus­try seg­ments on the eve of the fes­ti­val sea­son.

Ac­cord­ing to The In­dian Foun­da­tion of Trans­port Re­search and Train­ing `2.98 (IFTRT), per litre hike in diesel price, 20-25 per cent in­crease in out­put of fruits, veg­eta­bles, pulses and other food items along with im­proved fac­tory out­put by 10-15 per cent, es­pe­cially from small and medium man­u­fac­tur­ing units (SMEs) re­sulted in im­proved cargo of­fer­ings for truck­ing in­dus­try and con­se­quently boosted the truck rentals by four to five per cent dur­ing Septem­ber. Rental on the Delhi-Mum­baiDelhi round-trip on a 15-tonne `89,350 pay­load truck stood at on Oc­to­ber 1 when com­pared with `85,100

on Septem­ber 2. The Delhi-Ban­ga­lore-Delhi round-trip saw a rise of four

`139,000 per cent to from `133,700

and the Del­hiChen­nai-Delhi trip rental was up five per cent to `140,200 `133,500.

from

Thus, with im­prove­ments across cat­e­gories, fleet util­i­sa­tion level went up af­ter a phase which saw truck­ers fac­ing over sup­ply is­sues. talks to the lo­gis­tics ser­vice providers and truck­ers to know how is it go­ing to af­fect the lo­gis­tics play­ers/CV play­ers and how will sup­ply chain and lo­gis­tics man­agers face the in­crease in truck­ing rates?

OP Harsh­wal, CEO, V-Xpress, says, “Trans­port cost is the largest com­po­nent and ac­counts for almost one-third of the over­all lo­gis­tics cost. In the cur­rent com­pet­i­tive en­vi­ron­ment, lower freight cost gives cus­tomers an edge over the com­pe­ti­tion. Any in­crease in freight is bound to di­rectly im­pact the profit mar­gins for cus­tomers who are gen­er­ally re­luc­tant to in­crease the freight rates and hence also im­pact the prof­itabil­ity for the lo­gis­tics play­ers. As the mar­ket is dy­namic and evolv­ing, ev­ery cus­tomer aims at op­ti­mis­ing their sup­ply chain and ev­ery lo­gis­tics player looks at re­duc­ing their op­er­a­tional cost and pro­vide best cus­tomer ser­vice. Cus­tomers will tend to con­sol­i­date their loads and try to move as much ma­te­rial as pos­si­ble through Full Truck Loads (FTL) as against sundry loads. So, lo­gis­tics play­ers will see a shift from sundry loads mov­ing into FTL loads.”

An­jani Man­dal, Co­founder and CEO, 4TiGO urged for fur­ther ra­tio­nal­i­sa­tion in freight rates in large num­ber of routes, es­pe­cially those orig­i­nat­ing from the South. “At cur­rent util­i­sa­tion lev­els, they are still in­ad­e­quate to cover costs and cost of fi­nance. Im­prove­ment in their util­i­sa­tion is en­tirely de­pen­dent on an up­swing in de­mand from them­selves. They can achieve this by ven­tur­ing into un­der-served routes even if they are not fa­mil­iar with such routes,” he adds.

Ac­cord­ing to Hari Om Prasad, Re­gional Head-Trans­porta­tion, Haiko Lo­gis­tics, it is af­fect­ing the project cost higher. Lo­gis­tics play­ers hav­ing con­tracts with the com­pa­nies on an­nual, half an­nual ba­sis is los­ing money due to in­crease in rate. Dur­ing Septem­ber, the loads from FMCGs in­creased due to fes­tive sea­son re­sult­ing higher de­mand of sup­ply of trucks. Those who are work­ing with these com­pa­nies on ad­hoc ba­sis will have no im­pact. How­ever, con­sumer will pay higher rates for the goods.

R Jayaku­mar, Chair­man, Jayem Lo­gis­tics points two ma­jor fac­tors di­rectly as­so­ci­ated with the in­crease or de­crease of freight rates; one is diesel and other is de­mand. “Although the diesel prices have been fluc­tu­at­ing over the past few months, de­mand has also gone up be­cause of fes­tive sea­sons and big bang sale from E-com­merce com­pa­nies. Lot of de­mand has been gen­er­ated by SMEs and lo­gis­tics com­pa­nies will have good time in terms of their rev­enue but op­er­a­tional in­ef­fi­cien­cies will add to cus­tomer woes. Trunk routes like Delhi – Mum­bai/Delhi – Chennai/ Delhi – Ban­ga­lore/Chennai – Ban­ga­lore and vice versa will wit­ness lot of move­ment. CV play­ers must match the de­mand and gear up their sup­plies. GST will play a very big role in ca­pac­ity en­hance­ment of CV play­ers, hence the lot of thrust will be on sup­ply of HMV/LMVs,” he adds.

Ajay Khosla, DGM (Delhi & Ut­tarak­hand), Jaipur Golden Trans­port Com­pany, says, “In last four years, only the prices of fuel have in­creased more than 10 times and still in­creas­ing. The in­crease in fuel cost makes trans­porta­tion cost higher which af­fect di­rectly and indi­rectly to the rest of the econ­omy be­cause all the pro­duc­tion need to be trans­port to dif­fer­ent chan­nels to reach ul­ti­mately end con­sumer.”

“It will erode the mar­gins fur­ther for trans­porta­tion com­pa­nies in case they have agreed on a fixed long term rate con­tracts. Even when they are not com­mit­ted it is not easy to get equiv­a­lent in­creases from the users and squeezes the over­all mar­gins in the busi­ness,” notes Aditya Gupta, Head - 3PLS Busi­ness De­vel­op­ment, DIESL.

“Fuel cost is the fo­cal el­e­ment of the over­all trans­porta­tion cost and these re­cent hikes af­fected all modes of trans­porta­tion (Road/ Air/Train) but this im­pact ut­most to the road trans­porta­tion only as this sec­tor de­mand high­est fuel based en­ergy. These all-time high fuel prices adding sig­nif­i­cant cost to truck own­ers can­not be com­pen­sate through fuel sur­charge only. Thus, these are cal­cu­lated based on loaded mile as other than ded­i­cated con­tract move­ments all car­rier must run empty when un­load one ship­ment and move to pick an­other one,” Khosla adds.

Ga­gan Klaire, Di­rec­tor, Ma­jha Trans­port, shares, “Be­ing a trucker, we wel­come an in­crease in freight rates, which have been long over­due. Although the in­crease seems to be more be­cause of

Ev­ery cus­tomer aims at op­ti­mis­ing their sup­ply chain and ev­ery lo­gis­tics player looks at re­duc­ing their op­er­a­tional cost and pro­vide best cus­tomer ser­vice At cur­rent util­i­sa­tion lev­els, it is still in­ad­e­quate to cover costs and cost of fi­nance. Im­prove­ment in util­i­sa­tion is de­pen­dent on an up­swing in de­mand Lo­gis­tics play­ers hav­ing con­tracts with the com­pa­nies on an­nual, half an­nual ba­sis is los­ing money due to in­crease in rate Lot of de­mand has been gen­er­ated by SMEs and lo­gis­tics com­pa­nies will have good time in terms of their rev­enue but op­er­a­tional in­ef­fi­cien­cies add to cus­tomer woes

the fes­tive sea­son around, and his­tor­i­cally month Septem­ber has al­ways seen an up­ward in­crease in freights. How­ever, in some lanes like Delhi-Mum­bai the freight has only in­creased, whereas there has been no in­crease the other way around.”

“On a larger pic­ture, the freight in­crease is in­di­ca­tion of cor­rec­tion in de­mand-sup­ply of trucks. There has been an ab­nor­mal in­crease of fleet over the last few years. The last 10 months have been cor­rected by negative ad­di­tion on fleet, im­mense drop in trucker’s rev­enue, fall in de­mand in in­dus­trial and in­fras­truc­ture sec­tors, NGT im­pli­ca­tion of 10 years’ reg­is­tra­tion of fleet has led to a good num­ber of scarp­ing of old fleet around NCR (which is a home for ma­jor­ity of the fleet reg­is­tra­tion),” he adds.

What in­flu­ences the in­crease?

If one see the en­tire sup­ply chain value, there are many el­e­ments which can any time add up to the freight rate. Harsh­wal listed the fol­low­ing points for the in­crease: • Ris­ing fuel prices is the pri­mary and di­rect rea­son for freight rate in­crease. The diesel prices have gone up to 20 per cent as com­pared to last year, which is also be­cause we have seen crude prices grad­u­ally rise over the past sev­eral months. • In­crease in the toll taxes (which is the se­cond high­est cost com­po­nent of the freight charges) along the high­ways. Pur­chase of new trucks by ven­dors have also lead to in­crease in freight as they must re­cover the cost of the ve­hi­cle.

Ac­cord­ing to Man­dal, it is a con­se­quence in part due to sup­ply vs de­mand mis­match for the route and partly be­cause an in­crease in fuel and man­power costs. How­ever, there are cor­re­spond­ingly, an equiv­a­lent num­ber of routes where the prices are go­ing down.

Truck­ing rates

“Rather than stat­ing, ‘keeping the rates low’, busi­ness own­ers must un­der­stand that cost in­creases will come. They may rather take the other means of trans­porta­tion. Rail­way may be an op­tion. They may hire the al­ter­na­tive ve­hi­cles with proper pack­ag­ing of the ma­te­rial,” in­forms Prasad. Shar­ing the trucker’s per­spec­tive, Klaire says, “As most of the 3PL and big com­pa­nies have en­joyed the drop-in trucker freight rates over past few years ac­cord­ingly they should be gear­ing them­selves for quan­tum leaps in freight rates over the next few years.”

The in­crease in fuel cost makes trans­porta­tion cost higher which af­fect di­rectly and indi­rectly to the rest of the econ­omy trans­port These all-time high fuel prices adding sig­nif­i­cant cost to truck own­ers can­not be com­pen­sate through fuel sur­charge only We wel­come an in­crease in freight rates. The in­crease seems to be more be­cause of the fes­tive sea­son, which is al­ways seen an up­ward in­crease in freights